Prime US REIT - Maybank Kim Eng 2020-08-07: Another Strong Quarter

PRIME US REIT (SGX:OXMU)

Prime US REIT - Another Strong Quarter

Prime US REIT (SGX:OXMU) delivered 1H20 DPU of USD3.52cts, 5.1% ahead of its IPO forecast, underpinned by its new Park Tower asset, and improving leasing activity in 2Q20.
We expect that US office market fundamentals will continue to be supported by demand from financial and professional services, and its growing technology sector. DPU visibility remains backed by its 4.8-year WALE and growth by its well-placed assets, which are under-rented by 7.5%.

We maintain our forecasts and USD1.10 DDM-based Target Price (COE: 7.4%, LTG: 2.0%). Valuations are undemanding at 8+% FY20 DPU yield with improving operational performance and potential acquisitions, as re-rating catalysts.
BUY.

Prime US REIT's 1H20 revenue, NPI and DPU exceeded IPO by projections by +5.7%, +7.6% and +5.1% respectively. This was primarily driven by its Park Tower acquisition in Feb 2020, which partially offset a short-term reduction in demand for parking.
Prime US REIT's portfolio occupancy dipped q-o-q from 94.9% to 93.0% with non-renewals at Village Center Station I in Denver (down from 87.2% to 65.1%) and 171 17th St in Atlanta (96.6% to 86.3%). Microsoft’s ongoing expansion should spur demand from technology sector tenancies and support backfilling in the coming quarters. 99.8% of its leases by cash rental income (CRI) remain backed by embedded rental escalations averaging 2.0% pa.

Rental collections in 2Q20 were strong at 99% according to management, with minimal lease deferrals (at 0.2% of CRI) and no rent abatements. A +8.5% rental reversion was achieved on long-term leases (vs +6.3% in 1Q20) with over 60% of its leases renewed by its existing tenants.
Leasing activity has gained traction with ~52.5k sf added in 2Q20 (from 30k sf in 1Q20) and 36k sf post its 1H20 at positive reversions.
DPU visibility remains high and supported by its 4.8-year WALE (5.6 years for its top ten tenants) with 3.3% of its leases (by CRI) expiring in 2020.

Its balance sheet remains strong with leverage at 33.0%, and suggests USD330-510m in debt headroom (at 45-50% limits). Prime US REIT continues to place well against its US office S-REIT peers on operational metrics and capital management, with low near-term leasing and refinancing risks.
See Prime US REIT Share Price; Prime US REIT Target Price; Prime US REIT Analyst Reports; Prime US REIT Dividend History; Prime US REIT Announcements; Prime US REIT Latest News.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-08-07

SGX Stock Analyst Report BUY MAINTAIN BUY 1.100 SAME 1.100